NAIC Model Regulations

The regulations clearly specify two illustration types - a basic (compliance) illustration and a supplemental illustration. Nearly all the regulation's intent and focus relate to the basic ledger. VitalTerm is NOT a basic illustration but rather a supplemental illustration. The requirements of a supplemental illustration, under section 8 of the regulations, are as follows:

(1) It is appended to, accompanied by or preceded by a basic illustration that complies with the regulations,

(2) The non-guaranteed elements shown are not more favorable than those in the basic illustration,

(3) It contains a statement that non-guaranteed elements are not guaranteed, and

(4) The premiums shown in the supplemental ledger are the same as the premiums in the basic ledger.

Several questions relate to the requirements of a supplemental illustration. Question 6.3 specifically addresses multiple product side-by-side comparisons.

6.3 How will agent or broker produced illustrations comparing several companies' premiums side-by-side be impacted by this new model?

Any effort to sell a particular policy would require the agent or broker to provide the illustration required by the model regulation. Section 4H defines an illustration as "a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years." If non-guaranteed elements were included in the side-by-side comparison, then the provisions of the regulation must be met. Section 11F(1) requires that an officer of the company certify that the illustration formats meet the requirements of the regulation. Therefore, it is entirely inappropriate to show the non-guaranteed premiums in any manner other than as part of a basic illustration and, if useful, a supplemental illustration."

We interpret this statement as follows.

1. Any depiction of non-guaranteed elements must comply with the regulation. VitalTerm does comply as a supplemental illustration.

2. The question clearly notes that these comparisons are broker / agent prepared and not home office prepared (i.e. not reviewed by the carrier). Thus the regulations are not intended to stop agents from preparing supplemental materials and are specifically accounted for in Section 8’s supplemental requirements. Section 11F(1) defines the responsibilities of a company officer in certifying the compliance of the carriers basic ledger, not agent /broker prepared supplemental illustrations.

3. As a supplemental illustration VitalTerm quotes must be accompanied by the complete basic illustration provided by the carrier (or carriers software). This has been LifeLink Corporation policy for years.

4. The wording "effort to sell a particular policy" may be interpreted to mean that if the intent is to sell a single specific product on a multi-product comparison (most likely the lowest premium product) then perhaps the regulations may be satisfied by showing only the basic ledger from that single company. We would advise VitalTerm users to provide the client with complete basic ledgers for each product they considered.

5. The regulations clearly do not intend to eliminate supplemental illustrations and in fact consistently draw distinctions between basic and supplemental illustrations. The intent of the regulation is to require clear, complete, disclosed basic illustrations for the client from the carrier. Broker, agent, or third party supplemental materials must comply with section 8 (only) and are clearly seen as effective tools for clarifying, explaining, or summarizing basic illustration values.

Throughout their questions and answers the NAIC makes it clear that they draw a distinction between basic and supplemental illustrations. Nearly all requirements are of the basic ledger. The supplemental is supported by the basic ledger since the supplemental must be accompanied by the complying basic ledger. We can find no areas where the NAIC has not consistently noted this distinction. For example, question 7.6 asks about page numbering of graphs and charts. The NAIC replies "Graphs, charts, and concepts only have to be included in pagination of the basic illustration if they are part of the basic illustration. In many cases they may be part of a separate, complying supplemental illustration, and thus need not be included in the pagination of the basic illustration.". Question 7.7 asks if it is permissible to use a spreadsheet (without text, definitions, continuous pagination, etc.) if it is attached to a basic illustration. The NAIC response is clear "Assuming the spreadsheet meets the requirement that it not be inconsistent with a basic illustration, it could be attached to the basic illustration as a supplemental illustration." Clearly the NAIC recognizes the value of supplemental information and does not discourage or prevent its use. The NAIC only expects supplemental illustrations to comply with the simpler requirements of Section 8.

We believe that the NAIC has no intention of limiting the use of supplemental materials (including term comparison systems) and only expects that such supplemental systems be accompanied by a complying basic illustration (as well as the modest requirements of section 8 noted above). We strongly support both the literal as well as implied intent of these regulations.